On the header

Apple just reported an extremely rare miss on its third-quarter earnings. The company came in below analysts’ expectations on profits, and Apple’s fourth-quarter outlook underwhelmed analysts as well, thanks in large part to “transition” issues this fall.

Translation: People are waiting for the iPhone 5 to come out and, as a result, they aren’t buying as many of the current models as expected.

The stock has fallen more than 5% after-hours. I feel really bad. Because I’m one of those waiters. …

Amid widespread concerns that mobile advertising may never work as well as ads served to people’s desktop and laptop computers, several companies are attempting to prove the naysayers wrong. Facebook partners piled on earlier this week with studies showing the social network’s mobile ads produce way more clicks and revenues than its desktop ads.

Now it’s Google’s turn. This morning it’s trotting out, along with updated mobile search ads, a case study of how T-Mobile last year used Google mobile search ads to try to get more new customer activations to its cellular service. Kari Nicholas, T-Mobile’s director of media, said in an interview that the company aimed to do that by making it easier to sign up online or reach them via their existing mobile phone to visit nearby stores.

The main goal, given that most people doing a search on T-Mobile or other more general wireless-related words such as smartphones or 4G are likely to be well down the path to getting a new phone or service, was to guide those searchers quickly and easily to the nearest store. So the campaign served separate ads to mobile users, automatically showing both the nearest store on a map and a click-to-call button. The company also served different ads depending on whether the person had an Android or an iPhone or was on a particular service such as Verizon or T-Mobile.

The results: In one month, the campaign attracted 162,000 people to T-Mobile’s website. The mobile search ads tied to a person’s location got a lot of clicks–a 13% click-through rate, which is orders of magnitude higher than standard display ads. And the ads also generated 20,000 phone calls to stores. …

It’s that time of year for the annual Prognosticators’ Ball, when most of us dine on humble pie. I will be opining on what’s coming in 2012 for the parts of tech I follow, but first a report card on how I did a year ago. Here’s what I predicted, followed by my completely unbiased assessment of each:

* There will be at least one monster initial public offering in tech. Take your pick (in more or less descending order of likelihood): Skype, Groupon, Zynga, Demand Media, LinkedIn, Twitter, Facebook (only if it has to). But despite many stories that will call this event a bellwether, the IPO won’t bring back anything like the bubble days of the late 1990s (and thank goodness for that) because there are still only a few marquee names that can net multibillion-dollar valuations.

Bingo! Four of those companies went public (and one, Skype, got bought by Microsoft), but it remains clear that the IPO window opened only a crack so far.

* App fever will cool. Good apps that encapsulate a useful task or bit of entertainment–Angry Birds, AroundMe, Google Voice–will continue to do well. But those apps that do little more than apply a pretty layer atop Web content won’t get much traction–and moneymaking opportunities are uncertain in any case. The bigger issue: Once HTML5 becomes the widespread standard for creating Web services, enabling much more interactive Web services right from the browser, I wonder whether the need for separate apps will gradually fade.

Wrong! I still wonder, even more this year, about the appeal of apps, which increasingly look like a return to the bad old days of constant upgrades. But the day of reckoning, if it ever comes, certainly didn’t happen in 2011.

For days, Google and Verizon have been taking it on the chin for allegedly forging an online content distribution deal that might topple the hallowed notion of Net neutrality, the idea that no content or content provider should be able to pay for priority delivery on the Internet. Google flatly said the New York Times story was wrong, and so did Verizon, though the Times stood by it. This morning, Google CEO Eric Schmidt and Verizon CEO Ivan Seidenberg are holding a press call presumably to clear the air. Google said in emails to reporters:

I’ll blog the highlights as they happen. The call’s a bit delayed as of 10:35 a.m. Pacific, as are the blog posts.

And now Schmidt kicks off the call.

Schmidt: We’ve spent quite a bit of time talking. To my very pleasant surprise, over the last several years we’ve found more and more we agree on (with Verizon).

Basic goal is to put aside the very divisive debate. This is the next step in making this debate more profound and clear.

An open Internet allows the next Google to be created. Openness leads to more innovation, more (services) for consumers.

Almost all of the criticism is wrong.

And now the blog post is up. The essential takeaways seem to be 1) that net neutrality should be the law of the land for wired networks, meaning that there shouldn’t be paid priority for content on the open Internet, but paid-priority services on top of the open Internet should be allowed (yes, this is confusing for many people on the call, and no doubt will not satisfy some Net neutrality advocates). But 2) for the most part these principles shouldn’t apply to mobile, because it’s early and there’s somewhat more competition (this also will not please Net neutrality purists). Here’s the full blog post from Google:

A joint policy proposal for an open Internet

Posted by Alan Davidson, Google director of public policy and Tom Tauke, Verizon executive vice president of public affairs, policy, and communications

The original architects of the Internet got the big things right. By making the network open, they enabled the greatest exchange of ideas in history. By making the Internet scalable, they enabled explosive innovation in the infrastructure.

It is imperative that we find ways to protect the future openness of the Internet and encourage the rapid deployment of broadband. Verizon and Google are pleased to discuss the principled compromise our companies have developed over the last year concerning the thorny issue of “network neutrality.”

1. Users should choose what content, applications, or devices they use, since openness has been central to the explosive innovation that has made the Internet a transformative medium.

2. America must continue to encourage both investment and innovation to support the underlying broadband infrastructure; it is imperative for our global competitiveness.

Today our CEOs will announce a proposal that we hope will make a constructive contribution to the dialogue. Our joint proposal takes the form of a suggested legislative framework for consideration by lawmakers, and is laid out here. Below we discuss the seven key elements:

First, both companies have long been proponents of the FCC’s current wireline broadband openness principles, which ensure that consumers have access to all legal content on the Internet, and can use what applications, services, and devices they choose. The enforceability of those principles was called into serious question by the recent Comcast court decision. Our proposal would now make those principles fully enforceable at the FCC.

Second, we agree that in addition to these existing principles there should be a new, enforceable prohibition against discriminatory practices. This means that for the first time, wireline broadband providers would not be able to discriminate against or prioritize lawful Internet content, applications or services in a way that causes harm to users or competition.

Importantly, this new nondiscrimination principle includes a presumption against prioritization of Internet traffic – including paid prioritization. So, in addition to not blocking or degrading of Internet content and applications, wireline broadband providers also could not favor particular Internet traffic over other traffic.

Third, it’s important that the consumer be fully informed about their Internet experiences. Our proposal would create enforceable transparency rules, for both wireline and wireless services. Broadband providers would be required to give consumers clear, understandable information about the services they offer and their capabilities. Broadband providers would also provide to application and content providers information about network management practices and any other information they need to ensure that they can reach consumers.

Fourth, because of the confusion about the FCC’s authority following the Comcast court decision, our proposal spells out the FCC’s role and authority in the broadband space. In addition to creating enforceable consumer protection and nondiscrimination standards that go beyond the FCC’s preexisting consumer safeguards, the proposal also provides for a new enforcement mechanism for the FCC to use. Specifically, the FCC would enforce these openness policies on a case-by-case basis, using a complaint-driven process. The FCC could move swiftly to stop a practice that violates these safeguards, and it could impose a penalty of up to $2 million on bad actors.

Fifth, we want the broadband infrastructure to be a platform for innovation. Therefore, our proposal would allow broadband providers to offer additional, differentiated online services, in addition to the Internet access and video services (such as Verizon’s FIOS TV) offered today. This means that broadband providers can work with other players to develop new services. It is too soon to predict how these new services will develop, but examples might include health care monitoring, the smart grid, advanced educational services, or new entertainment and gaming options. Our proposal also includes safeguards to ensure that such online services must be distinguishable from traditional broadband Internet access services and are not designed to circumvent the rules. The FCC would also monitor the development of these services to make sure they don’t interfere with the continued development of Internet access services.

Sixth, we both recognize that wireless broadband is different from the traditional wireline world, in part because the mobile marketplace is more competitive and changing rapidly. In recognition of the still-nascent nature of the wireless broadband marketplace, under this proposal we would not now apply most of the wireline principles to wireless, except for the transparency requirement. In addition, the Government Accountability Office would be required to report to Congress annually on developments in the wireless broadband marketplace, and whether or not current policies are working to protect consumers.

Seventh, and finally, we strongly believe that it is in the national interest for all Americans to have broadband access to the Internet. Therefore, we support reform of the Federal Universal Service Fund, so that it is focused on deploying broadband in areas where it is not now available.

We believe this policy framework properly empowers consumers and gives the FCC a role carefully tailored for the new world of broadband, while also allowing broadband providers the flexibility to manage their networks and provide new types of online services.

Ultimately, we think this proposal provides the certainty that allows both web startups to bring their novel ideas to users, and broadband providers to invest in their networks.

Crafting a compromise proposal has not been an easy process, and we have certainly had our differences along the way. But what has kept us moving forward is our mutual interest in a healthy and growing Internet that can continue to be a laboratory for innovation. As policy makers continue to formulate the rules of the road, we hope that other stakeholders will join with us in providing constructive ideas for an open Internet policy that puts consumers in charge and enhances America’s leadership in the broadband world. We stand ready to work with the Congress, the FCC and all interested parties to do just that.

On to questions. First one basically asks if Google will get any priority on its content or traffic from Verizon. Seidenberg says absolutely not. Schmidt also says it has no plans to create some kind of special channels on Verizon’s Internet services.

Seidenberg says there will be no paid prioritization. We could not degrade anything related to the public Internet. But he says there could be additional (private?) services for which content delivery (presumably mostly video and voice) could be offered. But those services wouldn’t harm any content delivery on the open Internet.

Schmidt says not only does Verizon promise not to degrade any content delivery but it has no incentive to do so. “We will make sure they enforce those principles.” Schmidt says in response to another question that YouTube and other services will remain on the public Internet. So I’m not clear what other Verizon content delivery services would be.

Q: Is there any business arrangement between Google and Verizon? Schmidt: No, he says in no uncertain terms. Seidenberg says it’s a suggestion for public policy, nothing more.

Q: Something on the network management issue, meaning to what extent can or will Verizon do anything that allows it to prioritize some traffic over other traffic. Seidenberg: Need some flexibility, like prioritizing voice traffic during emergencies, but nothing else. We don’t do it now, so I don’t see why we’d ever start doing it.

Q: So what is this alternative system to the open Internet, asks Danny Sullivan of Search Engine Land? Schmidt: We have no intention of doing anything other than the Internet. Seidenberg: I never said an alternative. But other services could be built that ride the open Internet. Like Verizon’s FIOS television service now.

Q: What kind of entertainment service might go over a new service riding on the Internet? Seidenberg: Let’s assume Metropolitan Opera wants to broadcast every one of its performances. They probably don’t want to do that over the open Internet.

Last Q from Erick Schonfeld of Techcrunch: It’s hard for us to imagine future services that aren’t on the Internet. (Clearly this is confusing to many people on the call, understandably so. I’m not yet sure how you can hold out the possibility of services that would appear to be apart from the open Internet while insisting that everything will remain on the open Internet. On the other hand, it’s not a stretch to think that there are certain bandwidth-hogging services that the content providers themselves would want to have a more guaranteed level of service for–like Met operas.)

Activists aren’t happy. Public Knowledge President Gigi B. Sohn says the agreement “does almost nothing to preserve and open Internet.” Free Press political adviser Joel Kelsey says there are “giant loopholes,” not least in wireless networks.

But it seems to me that the phone isn’t really the point here–as even Android creator Andy Rubin seemed to acknowledge at the press conference. “This superphone is just a great way to access the Internet,” he said. “This is just the next front of our core business”: advertising.

So why a Google phone? Because, like so many other non-search products Google has introduced, it’s a way to push everyone else to step up their own products to make the Internet easier and faster to use–which inevitably helps Google’s ad business. Apps, the Chrome browser, the Chrome operating system, the Android OS, even its bid for wireless spectrum–all of them seem like corporate jiu jitsu, aimed at forcing incumbent leaders in respective industries, from Microsoft to Verizon, to follow Google’s lead in making the Net more accessible, more useful, more universally available.

With the Nexus One, it’s carriers (and to a lesser extent cell phone makers) that Google aims to shove into the more open world of the Internet. Will it work? Maybe not in the short term, since carriers still control their own networks.

A lot of things have to come together to make that scenario come true, though–some that weren’t announced. Danny Sullivan, for example, asked why Google didn’t do the really revolutionary thing: subsidize the phone with advertising. I didn’t hear a coherent answer, but that’s the sort of thing that will be required to change the game for good.